State Tax Changes 2027: Income Tax Cuts, Colorado’s New Brackets and Digital Taxes

State tax changes 2027 include income tax cuts in five states, a graduated income tax in Colorado, a new sales tax on software in California and Colorado, and a sales tax rate that is scheduled to rise in South Dakota. This guide lists only changes that lawmakers or voters have already enacted, as of early November 2026. Some election results are preliminary until each state certifies them. Check your state revenue agency before you act on any item.

Key takeaways

• Indiana, Mississippi, Montana, Nebraska and North Carolina have scheduled income tax rate cuts for January 1, 2027.
• Colorado voters approved Amendment 87, which replaces the flat 4.4% income tax with six brackets from 3.7% to 8.4% beginning with the 2027 tax year.
• North Carolina voters capped the state income tax rate at 3.5%.
• California and Colorado begin taxing software subscriptions and other digital products on January 1, 2027.
• South Dakota’s sales tax rate is set to return from 4.2% to 4.5% on July 1, 2027 unless lawmakers act.

Income tax rate cuts taking effect January 1, 2027

These cuts reduce the withholding tables that employers use, so paychecks may change in January. Taxpayers see the full effect when they file their 2027 returns in 2028.

Colorado moves to a graduated income tax

Colorado voters approved Amendment 87 on November 3, 2026. The measure replaces the flat 4.4% income tax with six brackets from 3.7% to 8.4%. Supporters say it will cut taxes for most households while raising rates for the highest earners. Reports describe a rate of 7.4% on income above $500,000 that rises toward 8.4% above $1 million. Revenue estimates range from about $2 billion to $2.7 billion. The measure took about 51% of the vote in preliminary results. A competing measure, Proposition 136, which would have capped the rate at 4.4%, failed. The Colorado Department of Revenue is preparing forms for the 2027 tax year.

Colorado also faces wage changes on the same date. Our guide to the Colorado minimum wage covers the $15.71 rate that begins January 1, 2027.

North Carolina caps its income tax at 3.5%

North Carolina voters approved a constitutional amendment that bars the legislature from raising the state income tax above 3.5% without another vote of the people. About 62% of voters supported it. The cap does not cut the rate by itself. The rate is already scheduled to fall to 3.49% in 2027. Voters also approved a separate amendment that requires lawmakers to limit increases in local property taxes.

Sales tax and digital product changes

California’s base rate is 7.25%, so a $100 monthly software subscription would cost $107.25 or more once the tax starts, depending on the local district tax. For the rate you pay in the state’s largest city, read our Los Angeles sales tax guide. In Colorado, home-rule cities collect their own sales taxes and may or may not follow the state on software, so local rules deserve a check.

South Dakota’s legislature failed to make the 4.2% rate permanent in 2026, when a bill ended in a 17–17 tie in the Senate. Lawmakers can still act in the 2027 session, which opens in January.

Business tax changes

Arkansas lowers its top corporate income tax rate from 4.3% to 4.1% for tax years that begin on or after January 1, 2027. The state also cut its top individual rate to 3.7% retroactive to January 1, 2026.

Property tax changes on the horizon

Florida voters approved an amendment that expands the homestead exemption for non-school property taxes to $250,000 by 2028. Oklahoma voters considered tightening limits on how fast property values can rise for tax purposes. Property tax rules usually take effect on a local schedule, so homeowners should check with their county.

Washington’s tax on high incomes comes later

Washington enacted a 9.9% tax on income above $1 million that begins in 2028, with first payments due in 2029. That is a 2028 change, not a 2027 one, but it affects planning now. Our Washington income tax guide explains the details and the legal challenge that is pending.

What to do before January 1

• Employers should update payroll withholding tables for Indiana, Mississippi, Montana, Nebraska and North Carolina when each state publishes them.
• Software sellers in California and Colorado should configure their billing systems to collect tax from January 1.
• Colorado residents should expect new forms and withholding guidance for the 2027 tax year.
• Households should check their W-4 and state withholding after the new year.
• Review our states with no income tax list if a move is on the table.

What this list leaves out

We include only changes that lawmakers or voters have enacted, and we do not predict what legislatures might do in the 2027 sessions. Election results are preliminary until certified. Some rate cuts depend on revenue triggers, so a state may announce additional cuts later. We update our state tax data sources page with the agencies we rely on.

Reading effective dates correctly

A change that takes effect “for tax year 2027” applies to income earned in calendar 2027 and shows up on returns filed in early 2028. A change that takes effect on January 1, 2027 for sales tax applies to purchases made on or after that date. Employers adjust withholding earlier than the final tax return, so workers may see paycheck changes before they see a refund or bill. Check each state’s agency for final withholding tables.

Frequently asked questions

Which states cut income taxes in 2027?

Indiana, Mississippi, Montana, Nebraska and North Carolina have enacted rate cuts that take effect January 1, 2027.

What is Colorado Amendment 87?

It replaces Colorado’s flat 4.4% income tax with six brackets from 3.7% to 8.4%, beginning with the 2027 tax year.

Is software taxable in California in 2027?

Yes. SB 122 extends sales tax to software as a service and other digital products from January 1, 2027.

What happens to the South Dakota sales tax rate?

It is set to return from 4.2% to 4.5% on July 1, 2027 unless the legislature extends the lower rate.

Did North Carolina cap its income tax?

Yes. Voters approved a 3.5% cap on November 3, 2026, with about 62% support.

Where can I check the final rules?

Check your state revenue agency or legislature for final rates, forms and effective dates.

Not affiliated with any government agency. Information only, not tax or legal advice. Read the full disclaimer.